Health & Welfare
Journal of Pension Benefits
Issues in Administration, Design, Funding, and Compliance
Volume 31 • Number 4 • Summer 2024
Another year of health and welfare litigation, another year of mixed results for both plaintiffs and defendants, but lessons for all. This column summarizes case law developments in 2023 and early 2024 involving health and welfare plans, including fee disclosure issues, use of artificial intelligence in claim denials, privacy issues, pleading standards and court deference in mental health parity cases. A lot to learn from a bevy of new cases and decisions.
by Sherrie Boutwell, Boutwell Fay LLP
Fee Disclosure/Self-Dealing Cases
The Employment Retirement Income Security Act of 1974 (ERISA) prohibits nearly every possible transaction involving an employee benefit plan subject to its provisions. However, it also contains statutory exemptions that allow such plans to function. One of the most important (and most litigated) of the statutory exemptions allows the provision of services to a plan for a reasonable fee. [ERISA Section 408(b)(2)]. Under longstanding US Department of Labor (DOL) regulations, service providers to “covered plans” must fully disclose both direct and indirect compensation
to the fiduciary who hires them, so that the plan fiduciary can make an informed decision about the reasonableness of the service provider’s fee. Until 2021, those regulations did not cover health plans. In 2021, Congress made health plans subject to Section 408(b)(2) of ERISA and mandated certain disclosures and reporting for pricing and fees. [P.L. 116-260].
Two years later, claims against service providers and claims against fiduciaries with respect to health plan service providers are now being brought and litigated, both individually and on a class action basis. In one, the employer sued its own service provider for failure to disclose all fees and failure to provide the services it contracted to provide. [Kraft Heinz Co. Emp. Benefits Admin. Bd. v. Aetna Life Ins. Co., E.D. Tex., No. 2:23-cv-00317, 2023]. In another, the plan fiduciaries were sued on a class action basis for failure to prudently select the plan’s pharmacy benefit manager, including
allegations that using a service provider who would be paid in the form of commissions was imprudent. [Lewandowski, V. Johnson and Johnson, Case 1:24-cv- 00671, (US DC NJ) Filed 02/05/24]. These cases test the waters not only with respect to fee disclosure, but also with respect to fiduciary duties of health and welfare plan fiduciaries and what information a plan
fiduciary can compel a service provider to hand over (information that is often considered proprietary by the provider) to the fiduciary.
Access to Claims Data and Pricing Information
The new requirements under ERISA Section 408(b)(2) require plan fiduciaries to obtain and evaluate fees and pricing of service providers. Part of the process of evaluating fees also involves evaluating services. Plan sponsors also are suing plan service providers to get access to claims data, in part to help them evaluate the services being provided. However, those cases have generally been settled with no reported decisions. See, for example, Owens & Minor, Inc. and Owens & Minor Flexible Benefits Plan v. Anthem Health Plans of Virginia, Inc. dba Anthem Blue Cross and Blue Shield [Case No. 3:23-Cv-00115, 2/13/2023] (settled on undisclosed terms).
Litigation over Use of Artificial Intelligence (AI)/Improper Processing of Claims on a Mass Scale
Individual benefit claims for denial of a benefit claim are not unusual and are specifically provided
for under ERISA. However, a new type of claim denial litigation is now being used: The assertion
by litigants (and regulators), that a claims administrator is using a faulty process to mass process claims, including one recent lawsuit alleging that an insurer is improperly using AI to deny claims. See, for example, Estate of Lokken v. UnitedHealth Group, Inc. [No. 23--3514 (D. Minn. complaint filed Nov. 14, 2023)], where the plaintiffs allege that United Health wrongly denied claims for skilled nursing and other benefits in Medicare Advantage plans, using a proprietary software program but no human review.
In another case, the DOL sued a division of United Healthcare alleging that it was improperly deny-
ing claims based solely on diagnosis codes (again without human review). On appeal, 98 percent of
those appeals were being overturned. The defendant changed their approach and the litigation with the DOL then settled.
New Mental Health Parity Cases
The Mental Health Parity and Addiction Equity Act’s requirements continue to be enforced by private
litigants in the courts. Some of these were covered in a prior issue. These include: Wit v. United Behavioral Health [No. 20-17363, 2023 WL 5356640 (9th Cir. Aug. 22, 2023], K.D. v. Anthem Blue Cross, [No.2:21-cv-343-DAK-CMR, 2023 WL 6147729 (D. Utah Sep. 20, 2023] and D.K. v. United Behavioral Health, [67 F.4th 1224 (10th Cir. 2023)].
Gender Affirming Care
A federal district court just held that an insurer acting as a third-party administrator for a self-insured plan violated Section 1557 of the Affordable Care Act (ACA) by excluding coverage for gender affirming care and ordered both injunctive relief and reprocessing of claims. Section 1557 of the ACA prohibits discrimination in on the basis of race, color, national origin, sex, age, or disability in certain health plans. The court also held that the 2020 regulations that narrowed the application of that section are contrary to the statute. [C.P. v. Blue Cross Blue Shield of Ill., 2023 WL 8777349, W.D. Wash 2023).]
Conclusion
Litigation against health and welfare plans and as well as sponsors and plan service providers continues to expand, with no end in sight. Plan sponsors and fiduciaries will want to work with their advisors and legal counsel to mitigate these risks, including, for example, by establishing a health and welfare plan committee (similar to retirement plan committees, which are common), reviewing their fiduciary and other insurance policies to confirm adequate coverage and reviewing service provider contracts and fees and their own internal processes.